Demystifying Snowflake: The Biggest Software IPO in History
The data warehousing company benefits from a first-mover advantage — but competition is not far behind
Welcome to The Ticker, a series that examines everything you need to know about companies going public.
One week ago, Snowflake made history. Debuting on the New York Stock Exchange, the data warehousing company became the largest software company to IPO in the U.S., ever. Initially expected to price shares between $75 and $85, the company went public at $120, catapulting up to $300 in its first day of trading. That broke another record: Snowflake became the largest company to ever double in value on its opening day, reaching a market cap of close to $75 billion.
Reasonably enough, this startling performance has been used as further evidence that the market has lost its mind. A searing hot summer that sent Vroom, Lemonade, BigCommerce, and other IPOs soaring appears to be transforming into an unseasonably balmy autumn.
How else do you explain an unprofitable company with 60% gross margins trading at about 75x the revenue it might earn a year from now?
Despite the rather remarkable multiples, there are reasons for optimism. They’re explored in detail in our longer report on the company, but outlined below are the three reasons Snowflake is here to stay, along with one note of caution.
Before enumerating Snowflake’s merits and weaknesses, it’s worth explaining what the company does.
Historically, a lot of company data has been stored on-premises. That means data is stored on physical servers managed by a company. Incumbents like Oracle and IBM have traditionally dominated the space.
Snowflake is fundamentally different. Rather than help store data on-premises, Snowflake helps companies warehouse it in the cloud. Even more critically, Snowflake makes that data queryable, meaning that it’s easier for businesses to pull insights from the data stored.
This is considered one of Snowflake’s key innovations: separating storage (where the data is held) from computing (the act of querying). By offering this service before…